Buy a primary here(turn into rental) or rental property farther away

[Wayne Toh]

Hi BiggerPockets Community , I’ve just recently graduated and is working in the bay area. I really want to get started in real estates. My current conditions are that I am expected to go back to graduate school in a year but I am unsure which part of US that would be in. I am currently pondering between three options.

1. I buy a primary here in the bay area but that would stretch my budget out dratically because of the high prices here but turn it into a rental after. Due to my limited income, this could even remove the option of low down payment just for me to see an acceptable mortgage payment. If this is the case, should I start of with a condo or SFH and house hack. 

2. I invest further away (maybe Central Valley/Nevada) but I am still able to manage the property. This allows me more purchasing power and I still have peace of mind being able to see the property as I am just starting out and want to learn more, (rather than leave it to a management company).

3. I invest OOS, where my risk tolerance is the lowest and may end up purchasing a lower priced property well within my budget where I can cover any vacancies/emergencies using my own capital. If so, what are some good appreciating markets with good economic growth and safety? I've been looking into areas in Wisconsin and North Carolina  (I chose these areas  because I have people there who could potentially help me out in the area) but all market ideas are welcomed. 

I am very new to all these ideas and have been watching the podcasts, youtubes and reading articles as well, trying to narrow down my options. So, to all investors who are willing to share some ideas, I greatly appreciate it and with your help, I hope to become a reliable member in the future as well!

[Nicholas Coulter]

@Wayne Toh i suggest exploring a HH. Its your first deal and going out of state requires a deeper level of expertise IMO. Also if you are looking OOS 20% down is frequently required and on the average price you're looking at 40k-80k down...

[Wilson Lau]

Quote from @Wayne Toh:

Hi BiggerPockets Community , I’ve just recently graduated and is working in the bay area. I really want to get started in real estates. My current conditions are that I am expected to go back to graduate school in a year but I am unsure which part of US that would be in. I am currently pondering between three options.

1. I buy a primary here in the bay area but that would stretch my budget out dratically because of the high prices here but turn it into a rental after. Due to my limited income, this could even remove the option of low down payment just for me to see an acceptable mortgage payment. If this is the case, should I start of with a condo or SFH and house hack. 

2. I invest further away (maybe Central Valley/Nevada) but I am still able to manage the property. This allows me more purchasing power and I still have peace of mind being able to see the property as I am just starting out and want to learn more, (rather than leave it to a management company).

3. I invest OOS, where my risk tolerance is the lowest and may end up purchasing a lower priced property well within my budget where I can cover any vacancies/emergencies using my own capital. If so, what are some good appreciating markets with good economic growth and safety? I've been looking into areas in Wisconsin and North Carolina  (I chose these areas  because I have people there who could potentially help me out in the area) but all market ideas are welcomed. 

I am very new to all these ideas and have been watching the podcasts, youtubes and reading articles as well, trying to narrow down my options. So, to all investors who are willing to share some ideas, I greatly appreciate it and with your help, I hope to become a reliable member in the future as well!

Hi Wayne,

Good job on watching podcasts and reading up on rei! My question to you is why invest now? Having been through grad school myself, I understand the stress and uncertainty that comes behind that diploma. Potentially, anywhere could be out of state, unless you are only applying in certain areas within a certain state. Why not wait till you are in grad school? You can consider doing a househack, then after you graduate, you can simply rent out the entire house for cash flow.

I would be caution about Wisconsin. Having lived in Minnesota for 4 years, I started off thinking I should invest in MN or WI, but the homeowner insurance there is $$$$ due to the horrendous weather.

Best of luck!

[Wayne Toh]

 Thank you for the insight. That is also a great option and I've also been considering it. I only chose this year because of the constant news I hear about real estate and how the best time is always 'now' and I believe I have finally saved up enough for a down payment after working for a full year. I have always been interested in financial literacy so I have been looking for a another good investment outside of stocks and bonds. I chose to mention grad school because it plays a big decision in my first option as well. However, I do think saving for another year can also be impactful. 

[Nathan Gesner]

Quote from @Wayne Toh:

Look at the market. If you buy locally, will your expenses be higher than if you were renting? In today's market, your mortgage, taxes, insurance, and maintenance could be 30 - 50% higher than if you were renting. Instead of paying $5,000 a month for a mortgage (plus taxes, insurance, and maintenance) consider renting for $3,000 a month and save the other $2,000 a month to apply towards real estate investing.

There are many great areas to invest in, and they don't have to be large cities like Cleveland. Read "Long-Distance Real Estate Investing" by David Greene to better understand how to find a market and do things from a distance. Find a market you like, then look for a really good property manager with a long track record. If you can't find a PM, don't invest in that market, because a bad PM can ruin a good investment. A good PM can also help you determine what types of properties are in demand, what neighborhoods to focus on, and maybe even cross-check any properties you find to see if they are good investments.

[Samuel Diouf]

I'd say buy a duplex and use it as your primary if you can. House-hacking is one of the best ways to get your foot in the door of investing. You’re able to learn the basics of a real estate investment with lower risk and build equity at the same time. Being able to enter a property with only 5% down means you can leverage your money way more effectively as well. When you leverage money personally, I think it makes more sense to invest in appreciating markets

If the duplexes are too expensive in your market, you could look into investing in the Midwest.  Many investors from California are choosing to invest in the Midwest because of the low barrier to entry and yearly cash returns making more sense in these lower priced markets. Ohio markets show up 3 times in Zillow’s 2024 hottest markets, with Columbus and Cincinnati taking the top 2 and 3 spots. I moved from Florida to start investing in Columbus because of the same reason.

https://www.zillow.com/learn/hottest-housing-markets-2024/

[Justin Bradford]

Yo Wayne,

As a real estate agent in Sacramento that works primarily with investors, I can tell you that the ratio of rental income to property value is much higher in the Central Valley when compared to the bay. I work with many clients who 1031 exchange their properties in the Bay Area to Sacramento for this exact reason. It’s a great market to get started out in, especially if you want something local you can see personally. 

[Wayne Toh]

@

@Justin Bradford @Samuel Diouf @Nathan Gesner  Thank you all for the information. It seems that everyone has their opinions on how to start out and I am truly grateful for your insight. I will continue researching markets outside the bay and see the appropriate actions to take. 

[Becca F.]

Wayne, I vote for choices #1 or #2. Househack and if possible find a property with a large enough lot that you could build an ADU on in the future. San Jose is now the first city where an ADU can be sold separately from the main house - I'm not sure how that works, maybe the land is divided up in the assessed value??? I'm considering an ADU on my Bay Area SFH - haven't gotten estimates yet.

#2 could go with Central Valley (my local agent suggested Turlock), Sacramento area (was considering this area and maybe doing a LTR and MTR/STR on a duplex). Reno is within a long driving distance. I don't have any properties in these areas (yet) so I don't have any real life numbers.

#3 I've posted many times about my Midwest experience. The short version is do lots of research and buy Class A or B (you won't cash flow at 7% rates on LTR, unless you do MTR, STR or some creative strategy). Class C can be volatile. Highly recommend flying out and getting to know the area if you go OOS.

I would recommend attending local REI meetups. There are probably several in San Jose. DM me if you would like more info.

[Jimmy Lieu]

Quote from @Wayne Toh:

Hi BiggerPockets Community , I’ve just recently graduated and is working in the bay area. I really want to get started in real estates. My current conditions are that I am expected to go back to graduate school in a year but I am unsure which part of US that would be in. I am currently pondering between three options.

1. I buy a primary here in the bay area but that would stretch my budget out dratically because of the high prices here but turn it into a rental after. Due to my limited income, this could even remove the option of low down payment just for me to see an acceptable mortgage payment. If this is the case, should I start of with a condo or SFH and house hack. 

2. I invest further away (maybe Central Valley/Nevada) but I am still able to manage the property. This allows me more purchasing power and I still have peace of mind being able to see the property as I am just starting out and want to learn more, (rather than leave it to a management company).

3. I invest OOS, where my risk tolerance is the lowest and may end up purchasing a lower priced property well within my budget where I can cover any vacancies/emergencies using my own capital. If so, what are some good appreciating markets with good economic growth and safety? I've been looking into areas in Wisconsin and North Carolina  (I chose these areas  because I have people there who could potentially help me out in the area) but all market ideas are welcomed. 

I am very new to all these ideas and have been watching the podcasts, youtubes and reading articles as well, trying to narrow down my options. So, to all investors who are willing to share some ideas, I greatly appreciate it and with your help, I hope to become a reliable member in the future as well!

Hi Wayne! If you decide to invest OOS, look for a market with great macroeconomics with a growing population and job market. That's what's been happening here in Columbus OH - lots of major companies moving and developing out here like Intel, Amazon, Meta, Google, etc. I've completed quite a lot of BRRRRs and flips here myself.  My OOS clients love it here because you can still find deals that hit the 1% rule, cash flowing, and have lots of potential for appreciation. You just have to make sure to work with a realtor who can easily plug you in to their systems and network of lenders, GCs, PMs, etc. Happy to connect and answer any questions you may have.

[Regina Blake]

Hi, yes Ohio is a great market to invest in real estate. Come and check it out for yourself and please reach out with any questions. Best wishes!

[Alfath Ahmed]

Quote from @Wayne Toh:

Hi BiggerPockets Community , I’ve just recently graduated and is working in the bay area. I really want to get started in real estates. My current conditions are that I am expected to go back to graduate school in a year but I am unsure which part of US that would be in. I am currently pondering between three options.

1. I buy a primary here in the bay area but that would stretch my budget out dratically because of the high prices here but turn it into a rental after. Due to my limited income, this could even remove the option of low down payment just for me to see an acceptable mortgage payment. If this is the case, should I start of with a condo or SFH and house hack. 

2. I invest further away (maybe Central Valley/Nevada) but I am still able to manage the property. This allows me more purchasing power and I still have peace of mind being able to see the property as I am just starting out and want to learn more, (rather than leave it to a management company).

3. I invest OOS, where my risk tolerance is the lowest and may end up purchasing a lower priced property well within my budget where I can cover any vacancies/emergencies using my own capital. If so, what are some good appreciating markets with good economic growth and safety? I've been looking into areas in Wisconsin and North Carolina  (I chose these areas  because I have people there who could potentially help me out in the area) but all market ideas are welcomed. 

I am very new to all these ideas and have been watching the podcasts, youtubes and reading articles as well, trying to narrow down my options. So, to all investors who are willing to share some ideas, I greatly appreciate it and with your help, I hope to become a reliable member in the future as well!

 Wayne - I would look to invest out of state in the Midwest. That is where you pose the least risk with the highest cashflow. Columbus is one of those cities that I recommend. There has been significant growth in the last 3-5 years, with booming business and real estate sectors. Companies like Intel, Amazon, and Google are investing here.

Would be happy to share any investing resources that I have with you. 

[Marcus Auerbach]

Quote from @Wilson Lau:

Quote from @Wayne Toh:

I would be caution about Wisconsin. Having lived in Minnesota for 4 years, I started off thinking I should invest in MN or WI, but the homeowner insurance there is $$$$ due to the horrendous weather.

Best of luck!

Wowowow! Hold on for a second!

Minnesota and Wisconsin are two very different markets! Maybe insurance is high in Minnesota (IDK), but it is not in Wisconsin. And it certainly has nothing to do with the "horrendous" weather. If you suggesting that winter is causing insurance to be higher, two things: the last years or see we call it brown grass season here in Milwaukee, because we don't get much snow anymore. Secondly, insurance does not care if it is cold. They care about other things: ask people in hurricane, flood or fire-prone areas!

Since you have me on a rant now: the Great Lakes region is considered a climate heaven: our winters are getting milder, our summers are awesome, we have not hurricanes, fires, earthquakes or other recurring disasters. And very important: most of the fresh water in the world.

Also, MN has become landlord-unfriendly. Although we are seeing some push from tenant organizations in Madison and some extent also in Milwaukee, we are generally considered one of the most landlord-friendly States in the US.

[James Hamling]

Quote from @Marcus Auerbach:

Quote from @Wilson Lau:

Quote from @Wayne Toh:

I would be caution about Wisconsin. Having lived in Minnesota for 4 years, I started off thinking I should invest in MN or WI, but the homeowner insurance there is $$$$ due to the horrendous weather.

Best of luck!

Wowowow! Hold on for a second!

Minnesota and Wisconsin are two very different markets! Maybe insurance is high in Minnesota (IDK), but it is not in Wisconsin. And it certainly has nothing to do with the "horrendous" weather. If you suggesting that winter is causing insurance to be higher, two things: the last years or see we call it brown grass season here in Milwaukee, because we don't get much snow anymore. Secondly, insurance does not care if it is cold. They care about other things: ask people in hurricane, flood or fire-prone areas!

Since you have me on a rant now: the Great Lakes region is considered a climate heaven: our winters are getting milder, our summers are awesome, we have not hurricanes, fires, earthquakes or other recurring disasters. And very important: most of the fresh water in the world.

Also, MN has become landlord-unfriendly. Although we are seeing some push from tenant organizations in Madison and some extent also in Milwaukee, we are generally considered one of the most landlord-friendly States in the US.

Hold your horses there buckaroo, or should I say cheese-headwear, lol. 

MN is NOT landlord UN-friendly or friendly, there simply is no such thing as that generalization STATE wide. It's all about where regulations hit, and in MN that's at city and county levels. 

So, in reality, MN has some of the BEST most landlord FRIENDLY cities, and some of the worst most horrific landlord UN-friendly cities. 

In the Twin Cities Metro area you will experience a HUGE variation. There is nightmarish areas of St Paul where you will have the strictest rent control in the nation and struggle to get rent's to make it worth while.    And than say we go to west metro, Minnetonka, arguably on of the most landlord friendly areas in nation, and where $4k, $7k, $10k rents are a reality one could enjoy. I have had CEO's and pro athletes among tenants.    And everything in-between.... 

As for insurance, I don't know what anyone can complain about other than having to pay anything at all. $3kyr to get near half a million in coverage seems a rather fair number to me.   

yes, MN has hail. Just like CO, TX and about what, 20 other states if not more? If have RCv vs ACV all that means is a 90%+ discounted roof replacement every 17yrs on average. And if get real lucky, new siding, windows, garage doors to boot. I have gotten reno projects for what is effectively a 98%+ discount via such. I say halleluiah to hail damage every 10/15yrs. I recently had one property get near $50k in improvements and it cost me $2,500. if that ain't ROI I don't know what is.

And ya know what rent's did upon completion, darn right they went up! The place had a new exterior.